Morgan Stanley Facing Class-Action Lawsuit Over CARE Program

Morgan Stanley is facing a class action lawsuit connected to their CARE program and the opt-in or opt-out process that x3mdot detailed 10 days ago (LEAKED: Morgan Stanley Document Attempts to Shorten Legal Options). We would imagine that this isn’t a surprise to anyone at Morgan Stanley. The firm faces a constant barrage of lawsuits as the largest investment bank and wealth management firm in the United States. Lawsuits, even those of the class action nature, are ‘the cost of doing business’. Still, the CARE program email and document caused quite a stir amongst advisors early last week. The emails that we fielded were filled with anger, confusion and even requests for legal representation.

No organization the size and scale of Morgan Stanley would roll out this kind of program (or addendum to the program) without knowing the ramifications legally. That is simply not how it works. Still advisors lashed out at the way that the update to the program was positioned. Here is part of a conversation we had with an advisor that succinctly sums up the issues advisors at the firm had with the ‘process’:

““I appreciate you bringing this to the attention of my fellow FA’s, many of which deleted the initial email assuming it was some type of benefit perk. Wanting to know more, I walked in to my manager and asked ” what do I do with this”? They whispered “opt out”. Enough said.”

The conversations with advisors about the CARE program have been covered back and forth here – (“I simply disregarded the email at first…”). We reached out to a securities attorney to discuss the ins and outs of a class action lawsuit based on the Care program – and what may or may not be its merits.

Scott Matasar, of Matasar Jacobs, had this to say about the pending litigation, “Morgan Stanley’s efforts to expand the CARE program may not even be legally enforceable because of flaws in the way the firm is rolling it out. In many states, negative consent letters—ones in which recipients have to take an affirmative action to maintain the status quo—are not enforceable in a variety of settings. Particularly where, as here, it appears that firm is trying to limit or eliminate advisors’ right to take legal action against Morgan Stanley if they have been mistreated, courts are hostile to these kinds of efforts to pull a fast one. While FINRA arbitrators are not required to follow the law strictly, they give it a great deal of weight.”

“There are two potential problems with bringing a class action on the CARE program. First, many advisors’ contracts have provisions that bar class action suits against their employer; I do not know whether that is the case with Morgan Stanley, but it is likely. Second, it is not clear how the economic damages of a class action would work because the economic damages to the advisors are either nil, or hard to quantify. Unless of course the class action is seeking “equitable relief” which is a court ruling holding the CARE opt-out illegal.”

The message above covers both sides of the issue pretty clearly. There are issues, legally, with how the CARE program opt-in or opt-out was presented to advisors who weren’t already in the program. Conversely, there are very limited merits connected to a class action lawsuit that may be based on the CARE program and it’s roll out. Again, Morgan Stanley is probably more than aware of their legal position and willing to defend it vigorously. Like we said before, legal tussles are the price of doing business at this altitude.